Resources are cheaper, but war can change that

Commodity prices have fallen 16% since their June peak. However, the escalation of the war in Ukraine once again draws our attention to the dependence of the raw materials market on the political situation. If there was another significant increase in their prices, it would mean a further increase in inflation in Poland and in the world.

The world is afraid of recession

This year's raw materials market is a real roller-coaster. Bloomberg Commodity Index (BCI), the broad raw material index, fell by 16 percent. towards its summit in June this year. However, raw materials are assets that have had no competition this year in terms of earning opportunities. Since the beginning of the year, BCI has increased by 16 percent. There are significant differences between individual raw materials, depending on the way they are used and changes in demand for them during the economic slowdown.

The current declines in the prices of some commodities are the result of the strengthening of the dollar and the growing concerns about the global recession. However, a further escalation of the situation in Ukraine may result in further sanctions on Russia, which may affect the situation on the market.

Industrial metals are getting cheaper through China

Industrial metal price drops from copper po aluminum materialis the aftermath of the situation in the Chinese economy, which generates more than half of the global demand for these raw materials. China's recovery from the pandemic is painful and abrupt, with the commodities market responding in particular to the significant slowdown in the Chinese real estate market. On the other hand, however, China has announced a growth stimulating program worth 1 trillion yuan (700 billion zlotys). This week also begins the congress of the Chinese Communist Party, which will have a huge impact on the development of the Chinese economy in the coming months and years.

Since the beginning of the year, the global market has increased by 60 percent. the wood fell. This is a signal of problems to come also for the US housing market, where 90 percent of the houses have a wooden structure. Cocoa and cotton prices are also falling as the market fears that in the recession, consumers will cut their spending on them. And high stocks of both these raw materials compensate for this year's worse harvest.

On the other side, there are resources that are getting more expensive all the time. Lithium prices and nickel grew this year, as electric vehicles became increasingly introduced. Grain prices are also rising, which is also a result of the limited supply by the war in Ukraine. The current export of Ukrainian grain is small compared to the pre-war situation. And it may be further slowed down as a result of the escalation of hostilities. During a recession, consumers focus more on meeting their basic needs, hence the demand for basic food products should not slow down. This demand is also supported by the continued growth of the world's population.

About the author

Pawel Majtkowski - analyst eToro on the Polish market, which shares its weekly commentary on the latest stock market information. Paweł is a recognized expert on financial markets with extensive experience as an analyst in financial institutions. He is also one of the most cited experts in the field of economy and financial markets in Poland. He graduated from law studies at the University of Warsaw. He is also the author of many publications in the field of investing, personal finance and economy.